In "Innovation and Its Discontents," a surprisingly riveting account of what went wrong with the patent system, Harvard Business School professor Josh Lerner and Brandeis economist Adam Jaffe show that two congressional decisions made long ago are at the root of today's problems.Twenty-five years ago, Congress created a specialized court to hear all patent appeals. Although Congress did not change patent law, the idea was to make the judicial interpretation of patent law more consistent.
Yet the new Court of Appeals for the Federal Circuit quickly became a champion for its specialty. It made patents easier to get, easier to enforce, more powerful and available for virtually anything, including software and business methods.
Ten years later, Congress decreed that the Patent and Trademark Office should be entirely self-funded from user fees--"pay-as-you-go government." But this gave us a patent office with a financial interest in its own operations. With a third of its income from maintenance fees paid over the life of granted patents, the office was naturally motivated to grant more patents. Its stated mission became "to help customers get patents."
The system favors the customer from the start. A patent examination is basically a secret proceeding. The patent is granted, unless the examiner can show that a patent should not be granted. An inexperienced examiner with a newly minted bachelor's degree in science is often pitted against a high-paid patent attorney. And if you are still refused a patent, you can file a continuation application, restarting the process and maybe getting an easier examiner. Counting continuations, 85 percent to 95 percent of applications in the U.S. are eventually granted--a much higher rate than in Europe or Japan.
Addicted to patents
Patentees and their lawyers are now addicted to a high-volume stream of easy-to-get patents. Thickets of dense overlapping patents keep new entrants at bay, and more patents make patent lawyers more important. By suddenly deciding that methods of doing business were patentable in 1998, the Federal Circuit positioned patent lawyers close to the heart of the enterprise.
Nobody was lobbying for patents on business methods when the Federal Circuit decided the State Street case. The ruling, which determined that business methods could be patented in the United States, was of course followed by a surge in filings.
Why didn't Congress overturn this immensely controversial decision? The land rush that followed created an instant constituency, including the lawyers that found themselves exalted beyond their wildest dreams. Corporate patent departments, acting through their common trade association, adopted a unanimous resolution telling Congress to not to meddle with the decision.
How could this happen? How did an activist court single-handedly undo 600 years of history that confined patents to fields of technology--offering 20-year monopolies to such things as diaper services and frequent flyer miles? Aren't judges supposed to be bound by precedent?
But this is Washington. The judge who wrote the State Street decision was formerly a patent lawyer who, along with an attorney from the patent office, had been brought on as staffers to draft the Patent Act of 1952. In State Street, he claimed that Congress intended everything "made by man" to be patentable and therefore to abolish the rule against business method patents. He ought to know, right?
Did Congress really change the course of economic history just because a staffer slipped a dependent clause, "which may include everything under the sun made by man," into a committee report? What did Congress intend?
Fortuitously, the judge answers this question himself a few years later with an aptly titled article, "Congressional Intent--Or Who Wrote the Patent Act of 1952." But here he reveals that Congress had so little time for patent law that it merely intended to leave the crafting of the Act in the hands of the patent attorneys it trusted. In another article around the same time, he salutes the diaper service (a nontechnological method of doing business if there ever was one) as "one of the greatest inventions of our times," but self-evidently unpatentable. If Congress had intended to change the law in 1952, he momentarily forgot.
But by 1998, when State Street was decided, the Internet was booming, new business models were everywhere, and the adaptability of the patent system was on the line. Patents are good, so patents on business methods had to be good. And why limit patents to techies? Why discriminate against inventive business people?
Today, eBay faces not only a judgment of $25 million for its "Buy It Now" feature but an injunction from the Federal Circuit to shut it down entirely. Like many business method patents, the patents that threaten to kill "Buy It Now," were awarded to, yes, a patent lawyer. But why discriminate against inventive lawyers?
Many judges are duly skeptical of divining Congress's intention from staff-written committee reports. But all should be appalled when judges charged with interpreting federal law allow their interpretation to be distorted by personal memory, colored by the championing of their own professional community, and contradicted by their own words.
We want invention to promote innovation--not invention that rewrites history.